Despite clear decarbonisation levers to reduce greenhouse gas emissions and contain global warming (including renewable energy, energy efficiency, materials innovation) they are met with the oft-bleated response: ‘who’s going to pay for it?’ By way of a response, one industry fund – somewhat stealthily – will release grant capital that effectively turns ‘risky’ decarbonisation investments into proven ‘de-risked’ ones to unlock vast amounts of additional capital.

The Fashion Climate Fund was established by the Apparel Impact Institute (Aii) – a nonprofit founded in 2017 by a group of brands, manufacturers and industry associations including the Sustainable Apparel Coalition (SAC), the Sustainable Trade Initiative (IDH), Target, PVH Corp., Gap and HSBC Holdings plc.

Aii has set itself this task: to select, fund and scale high-impact projects that dramatically and measurably improve the sustainability outcomes of the apparel and footwear industry. The Fashion Climate Fund holds $250M in blended capital from grants (which sidestep ROI-bound investment criteria) and corporate treasury dollars (bound by the ROI demands of the investing stakeholder). The grant funds will be allocated to programmes and innovations based on their decarbonisation potential, as identified in the Roadmap to Net Zero report¹, which follows science-based targets (SBT) guidance for fashion’s sector-level climate goals.

The report’s mandate was to:

1. Map the major sources of GHG emissions across the apparel value chain.
2. Identify the most impactful actions companies can take to reduce emissions.
3. Highlight the challenges to taking these actions and potential solutions.
4. Identify the organisations and initiatives working to reduce emissions in the sector.

This research was supplemented by a second report interrogating fashion’s decarbonisation opportunity² within existing and innovative solutions in partnership with Fashion For Good. The culmination is a combined analysis of where most of the sector’s emissions occur (in the supply chain), the solutions best placed to reduce them (renewable electricity and energy efficiency tools, in phase 1), barriers to implementation and the stakeholders required to make implementation happen.

Armed with this intel and direction, how will Aii’s Fashion Climate Fund³ work? What are the criteria for fund allocation to programs and companies addressing the renewable energy and energy efficiency imperatives for decarbonising fashion as quickly as possible? During an interview with Lewis Perkins, President of Aii (who dialled in from the Reuters Transform Supply Chains USA conference), he outlined the next steps now that the first cheques for the Fashion Climate fund have been deposited.

“We are building a network of tech advisors to form an expert advisory committee, starting with Chairs Linda Greer⁴ and Phil Patterson⁵“, he shared. They are working with Kurt Kipka, Aii’s Chief Innovation Officer, to build a committee to assess the programmes seeking funding.

Perkins explained the overall fund allocation strategy: “Generally speaking, it follows the tonnes of carbon, aiming for the highest yield against the potential for investment”. The higher carbon yield programmes are judged against a timeframe of scalability – meaning that the time taken to scale the solution is modelled against the amount of carbon removed per dollar invested.

The Fashion Climate Fund will first unleash its grant funds using a “catalytic capital approach” to establish the most promising decarbonisation technologies. Aii’s President explained that the data obtained from this non-ROI-bound investment in ‘risky’ decarbonisation solutions would demonstrate the necessary environmental and economic viability to “unlock debt and equity funding” totalling $1.74BN. “HSBC is allocating a trillion dollars to reach the SBTs, and they are changing their criteria around risk and size of investment”, Perkins added, hinting at its accessibility.

The ‘unlocked’ investment would be ROI-bound, delivering capital to proven solutions and securing decarbonisation sector-wide at an infrastructure and ‘mainstream technology’ level. Ultimately, such a chain of events would allow the achievement of science-based targets (notably in Scope 3), in line with containing global warming to below 2 degrees Celsius. Additionally, ‘mainstream’ decarbonisation would fortify fashion’s supply chains and mitigate the climate risk recently explained in our article regarding directors’ duties to quantify climate risk as a financial risk.

The timeline for deploying the $250M fund still needs to be fixed. However, Perkins revealed that following four years of conversations, corporate treasury cheques from brands have been coming in since June (and the amounts pledged are growing), along with philanthropic funds received from the likes of the PVH Foundation. He says that discussions have started happening to recruit companies for projects, but: “We need to accelerate this, so the timeline is to release [the funding] criteria in Q1 2023. [Then] the review of applicants will be guided by the expert advisors who will work alongside the lead partners of the fund”.

From his vantage point at the supply chain conference in Chicago, Perkins is taking notes on what other industries are doing to decarbonise their supply chains. He’s also meeting with organisations outside of fashion to understand their approach to carbon calculations and accounting and their methods of setting internal and supplier-specific SBTs. Another aim is to identify new, clean technologies ripe for cross-pollination from the food and agriculture industries. During the interview, his focus then shifted to reflections on regenerative agriculture’s role in carbon sequestration and how this might be attributable to the brands that had them produced.

Whilst the complexity of global warming is vast, it’s reassuring to reaffirm that decarbonising energy supplies can mitigate climate change.

It’s worth hanging on to that fact for a moment because it’s a welcome fragment of truth and clarity in the otherwise muddy arena we call ‘sustainability’.

Decarbonising energy must be the focal point for the sector at large. Still, it relies on vast capital to implement programmes to eliminate the most emissions quickly and at the lowest cost. Perhaps most reassuring about the Fashion Climate Fund is that the funding from grants is decoupled from ROI; and therefore decoupled from any agenda that doesn’t focus squarely on where most emissions are (in the supply chain, in the global south) and where the bulk of investment is needed.